Governments Sign Principles for Liberalization - Historic Achievement

Montebello, Canada - The International Air Transport Association (IATA) today announced the signing of a Multilateral Statement of Policy Principles regarding the Implementation of Bilateral Air Service Agreements by seven states and the European Commission.

The signing took place at the conclusion of the IATA-hosted second Agenda for Freedom Summit in Montebello, Canada.

The states that signed the document are Chile, Malaysia, Panama, Singapore, Switzerland, the United Arab Emirates and the United States of America; and was endorsed by the European Commission. In total they represent some 60% of global aviation.

“This is an historic achievement that will help set the foundation for a financially sustainable global aviation industry. I congratulate the seven governments and the European Commission for their visionary leadership. One agreement will not change the world. But this is a strong signal that this industry’s future must be realized in a much more liberal environment. Today’s signing is the beginning of a process of change. Our shared task now is to bring even more countries on board,” said Giovanni Bisignani, IATA’s Director General and CEO.

“Greater economic freedom is a critical element for aviation and I commend IATA’s Agenda for Freedom initiative. Today’s Statement of Policy Principles is perfectly in line with ICAO’s vision for liberalization as articulated at the fifth Worldwide Air Transport Conference in 2003. While safeguarding safety, security and environmental responsibility, governments and industry must also find a platform for financial sustainability in civil aviation,” said Roberto Kobeh Gonzalez, President of the Council of ICAO who witnessed the signing.

The 65 year-old bilateral system of air service agreements places restrictions on how airlines can do business in ways that no other industry faces. National ownership requirements do not allow airlines to merge across borders, precluding the development of global players that has been seen in other previously regulated industries such as telecommunications. Airlines are also restricted in market access, until government negotiators conclude agreements to allow cross-border services.

“Sixty-five years ago, when airlines were divisions of the state apparatus, the bilateral system and its restrictions made sense. The world has changed. Airlines are real businesses. Their bottom lines are subject to the harsh discipline of the market that has seen the industry lose a net of US$53 billion since 2001. Airlines made global business possible, but they remain a highly fragmented industry unable to cover their cost of capital. We don’t want government handouts. What is important is that we have a level playing field and the freedom to do business that every other industry takes for granted. Today’s signing is a major step towards that goal,” said Bisignani.

The policy principles address three main areas:

Freedom to access capital markets: States agreed on principles that would open the possibility for airlines to access global capital markets. This would be achieved with an agreement not to exercise bilateral rights that could allow them to block international services from airlines with non-national ownership structures. States also agreed to consider the possibility of a multilateral agreement to waive ownership restrictions.

Freedom to do business: States agreed on principles that seek to reduce restrictions on market access and to expedite the further opening of markets in future bilateral negotiations.

Freedom to price services: States agreed on principles that would allow greater freedom to price airline services in line with market realities.

While these policy principles are non-binding, they are an important statement of common government intention among the most active countries driving global aviation policy. The document notes specifically that the signatories “recognize the importance of promoting compatible regulatory approaches and reducing the potential for conflicts” and the intention to use the policy principles to guide “implementation of existing air service agreements and our approach to the negotiation of new or amended air services agreements in the future”.

Notes for Editors:

IATA (International Air Transport Association) represents some 230 airlines comprising 93% of scheduled international air traffic.

The first Agenda for Freedom Summit took place in Istanbul, Turkey on 25-6 October 2008.

IATA commissioned InterVISTAS to study the potential impact of liberalization in 12 markets (Australia, Brazil, Chile, India, Mauritius, Morocco, Peru, Singapore, Turkey, the United Arab Emirates, Uruguay and Vietnam). The study concluded that liberalization of both market access and ownership and control would increase annual GDP in the 12 economies by 0.86% (US$67.6 billion).

Market Access: The study concluded that liberalization of market access in these 12 economies would generate 1.5 million jobs and add US$42.1 billion in GDP while reducing average fares by 22%.

Ownership and Control: The study concluded that liberalization of ownership and control restrictions in these 12 economies would generate 900,000 jobs and add US$25.4 billion to GDP while reducing average fares by 16%.

Market Access and Ownership and Control: The study concluded that liberalization of both market access and ownership and control in the 12 economies would generate 2.4 million jobs and add US$67.6 billion to GDP while reducing average fares by 38%.